Amazon hikes Kindle royalties to 70%, with a catch

Amazon tries to stay ahead of the competition by offering higher royalties to …

Amazon dropped a bomb on the publishing world Wednesday morning by announcing a new royalty program that will allow authors to earn 70 percent royalties from each e-book sold, but with a catch or two. The move will pay participating authors more per book than they typically earn from physical book sales so long as they agree to certain conditions—conditions that make it clear that Amazon is working on keeping the Kindle attractive in light of upcoming competition. Still, authors and publishers are split on how good this deal really is.

Amazon's old system will remain in place for those who don't want to participate in the new arrangement, but the carrot to upgrade is pretty attractive—a typical $8.99 book would pay an author $3.15 under the "standard" system, while an author or publisher would get $6.25 under the new 70 percent scheme.

The catch, however, is that authors or publishers must list their books for between $2.99 and $9.99 on the Kindle. A majority of Kindle books already fall into this range, but authors are able to set prices higher if they want, and some do.

The price must also be at least 20 percent below the lowest list price for the physical book, the book must be available in all geographical areas where the authors has rights, it must include all features of the Kindle store (including text-to-speech capabilities), and the Kindle price must be the same or below the price offered at other e-book stores.

Essentially, the pricing and features of your book must be most attractive on the Kindle compared to any other option on the market. In return, more cash gets paid out.

Although the Kindle currently wears the crown for most popular e-book reader, Amazon seems to be feeling the heat and is now trying to stay ahead of the game with the one thing that matters most on any media device: content.

Amazon has long been criticized for taking too big a cut of Kindle book sales, and the 70 percent option is sure to quiet those critiques for some. Cesar Torres, Ars reader and author of an upcoming fantasy book called The 12 Burning Wheels, told Ars that the deal is definitely good for self-publishers and small presses.

"It's good because there are so many more small publishers or even developers who are cutting out the middle man and could use more profits," he said. Since Torres is working with a small publisher for his book, he gets a fairly hefty cut of the publisher's proceeds when his e-books are sold.

"This is very much like working with an indie music label," he said. "Historically, publishers don't always favor the writer or creator, but this technology is helping authors."

This, of course, doesn't necessarily mean that everyone is thrilled with the terms of the new system. Scott McNulty, author of Building a WordPress Blog People Want to Read and The Kindle Pocket Guide, told Ars that Amazon's $9.99 price point was great for readers, but just not realistic for larger publishers (it should be noted that he spoke to us on behalf of himself, and isn't aware of what his publisher plans to do with the new system).

"Lots of people assume that since you have an e-book, the price should be so much cheaper. And yet, when I wrote my Kindle book, the publisher had to pay me, the executive editor, the actual editor, the production editor, the guy who converts the book, and so on," McNulty said. "Actually, printing the book is the cheapest part of the whole scenario!"

At the same time, not going along with the pricing guidelines means that his publisher will only get a fraction of the royalties, and McNulty will get a fraction of that. Of sticking to their guns and declining the 70 percent royalty option, he said, "It's almost not worth it." Which is probably the entire point.

"Lots of people assume that since you have an e-book, the price should be so much cheaper. And yet, when I wrote my Kindle book, the publisher had to pay me, the executive editor, the actual editor, the production editor, the guy who converts the book, and so on," McNulty said. "Actually, printing the book is the cheapest part of the whole scenario!"

And yet - at least in the novel space - paperback editions are typically $7-$9, while hardbound editions are $20-$30. If the argument is that printing is the cheap part, why is the version which differs only in how it is printed 2-4 times as expensive?

Perhaps he's right in some manner, But unlike paper book duplicating an e-book is limitless and costless, Unlike printing. I say your business is being done wrong if you pay less to print it than to right click and select copy/paste to create a new one. They are paying someone to convert it? Really? Are they friggin that dumb? Youtube allows me to take all sorts of formats and upload them. They do the conversion to flash. If they can do it for free I'm damn sure Amazon could transport a DOC/PDF into any format they'd like to for nothing. Heck I've been converting batches of html for a sony reader and it takes a few seconds per book.

Good on Amazon. Someone finally found a carrot to convince rightsholders to voluntarily adopt more pro-consumer policies. Let's hope this is wildly successful to the point they can ditch the old plan, and all Kindle users can breathe a sigh of relief with the knowledge that their device will work like it's supposed to no matter whose book they're reading.

This is an impressively large squeeze on Amazon's own profits, and a lot of the benefit of that squeeze should make it to consumers in the form of more content, lower prices, and no asinine text-to-speech limitations. I'm impressed. And as a Kindle owner, elated.

"Lots of people assume that since you have an e-book, the price should be so much cheaper. And yet, when I wrote my Kindle book, the publisher had to pay me, the executive editor, the actual editor, the production editor, the guy who converts the book, and so on," McNulty said. "Actually, printing the book is the cheapest part of the whole scenario!"

All of those people get a cut of the royalties? Not one of them get paid a flat salary?

Remember Amazon have got to pay the network providers for the bandwidth. The system administrators for looking after the servers. The DBA's for making sure the database doesn't fall over.

I'm not saying they're not getting a good deal anyway, and yes the infrastructure is already in place due to their other businesses. But lots of people still have to get paid and the company still needs to make a profit to survive.

I'm still waiting for them to offer a deal where you can buy the Harcover, and get the ebook for another $1-2. I know that someone is going to state that if you buy the ebook you don't need a paper copy, but some of us like having a bunch of books on a shelf, and remember what its like to lose a large collection of digital copies of stuff (i.e. HD failure)

[yes, ebooks are small so it would be easier to back them up, but thats not the point]

"Lots of people assume that since you have an e-book, the price should be so much cheaper"

Missing the point that an ebook is inherently worth a lot less than a real book. I can't sell it on, I can't lend it to friends. If it's using DRM then it's totally tied in to a single device, meaning that if I want to upgrade my reader to a better model, there's a good chance that I can't take it with me.

it's not about the cost to produce the thing, it's about the value to the person with the money.

Remember Amazon have got to pay the network providers for the bandwidth. The system administrators for looking after the servers. The DBA's for making sure the database doesn't fall over.

I'm not saying they're not getting a good deal anyway, and yes the infrastructure is already in place due to their other businesses. But lots of people still have to get paid and the company still needs to make a profit to survive.

No they don't.It's 70% after bandwidth costs ("Delivery costs of the books are based on a price of $0.15 per MB meaning that the average 368KB book would cost about six cents to deliver.")

Delivery costs also are pretty minimal ^, so they don't make a huge impact, but Amazon are taking 30% of the profit, ignoring their own costs.

"Lots of people assume that since you have an e-book, the price should be so much cheaper"

Missing the point that an ebook is inherently worth a lot less than a real book. I can't sell it on, I can't lend it to friends. If it's using DRM then it's totally tied in to a single device, meaning that if I want to upgrade my reader to a better model, there's a good chance that I can't take it with me.

it's not about the cost to produce the thing, it's about the value to the person with the money.

Actually if you follow some logic (e.g. the idea that Steam adds value to PC games despite not allowing lending or resale), then an ebook is not inherently worth less than a real book.Kindle has some value added elements like being able to search the book (I assume), the whole text to speech thing, the ability to carry a large library around with you, etc.

An ebook adds value over a physical product because it allows things that aren't otherwise possible, even with the negation of resale value.

I was pleasantly surprised by this announcement, and expect that other announcements next week should be interesting as well. Currently the price for e-books are stupidly expensive. Printing, shipping and retail sales of books are the expensive (for the consumer) aspects of the whole deal. Anyone saying otherwise is a shill for the publishers.

A mainstream pocketbook doesn't cost anywhere near $10 to produce. The significant costs are physical, while the remaining costs are publishing related. The industry is hoping we are stupid enough to give them a pass on dropping the prices to the degree necessary to drop the cost of the physical asset. Keep in mind that to physically sell a book you need to print it. Warehouse it. Ship it. Accept returns from retailers(*). etc. eBooks should generally be about 40% cheaper than their physical counterparts.

They could have requested exclusivity, on the "read" version or on the "listen" one, they could have requested the right to enforce pricing...

Even the fixed 70% royalty is probably a good thing, as it levels the field between high-volume sellers, who may be tempted by lower margins for more sales, and lower-volume ones, who I suppose like a high margin per sale.

The evil part about being amazon-authentification and -backup and -survival and -chang of mind dependent, no loans, no rentals... remains, though.

Remember Amazon have got to pay the network providers for the bandwidth. The system administrators for looking after the servers. The DBA's for making sure the database doesn't fall over.

I'm not saying they're not getting a good deal anyway, and yes the infrastructure is already in place due to their other businesses. But lots of people still have to get paid and the company still needs to make a profit to survive.

Remember bookstores have to pay for store space and employees. The distribution people to manage the warehouses. The DBA's for making sure the database doesn't fall over.

Does a bookstore deserve the same cut? It's a question I'm interested, not being facetious.

And yet - at least in the novel space - paperback editions are typically $7-$9, while hardbound editions are $20-$30. If the argument is that printing is the cheap part, why is the version which differs only in how it is printed 2-4 times as expensive?

Different market segments. Hardcover books are often released earlier and command higher margins because they are consumed by collectors and people with more disposable income.

Same reason "special edition" games or DVD's, with negligible extra costs from packaging and add-ins, cost quite a bit more. Or why first class seats on airplanes, which take up about 200% more room, often cost 600% more. Market segmentation is everywhere.

Fair point. Perhaps I should have said that an ebook is not of directly comparable value; there are some things (convenience) that make it more valuable, others that make it less. The weighting of these factors is a personal thing. For me the lock-in is the killer. if I buy a few hundred dollars worth of books from Amazon, and Sony go and release a super-awesome new reader. I want to be able to buy that without losing access to my existing book collection.

"Lots of people assume that since you have an e-book, the price should be so much cheaper"

Missing the point that an ebook is inherently worth a lot less than a real book. I can't sell it on, I can't lend it to friends. If it's using DRM then it's totally tied in to a single device, meaning that if I want to upgrade my reader to a better model, there's a good chance that I can't take it with me.

it's not about the cost to produce the thing, it's about the value to the person with the money.

This has been my biggest complaint with e-Books since buying a Sony PRS-500 (the first US e-Reader) 3 years ago. A common book format! That is the solution, and what's needed. No device/content lock-in, dammit!

And right now we are headed toward EPUB as that common format. Sony and many other e-Readers support DRMed EPUB. The point is to buy a book from any store to read on your device... which means upgrading to a different brand/model of e-Reader will be fine too.

Amazon actually forced this, since they became instantly dominant with the Kindle. Now they're standing more-or-less alone with a proprietary format for their own e-Reader. Not very consumer-friendly if you ask me!

Other issues you brought up like re-sales and lending ... not sure how well they work with DRM EPUB, if at all. The Nook was supposed to break some new ground in lending. No idea if it's succeeded yet.

Yes, I know people are going to start yelling about removing DRM. But the first step is a universal format, then DRM elimination. After all, it's pointless if you get a DRM-free Kindle book, and can't read it on any of the 25 or so other devices out there!

Originally posted by EatingPie:Yes, I know people are going to start yelling about removing DRM. But the first step is a universal format, then DRM elimination. After all, it's pointless if you get a DRM-free Kindle book, and can't read it on any of the 25 or so other devices out there!

But it's the DRM that's standing in the way. It's pretty easy to convert between any of the non-DRM formats with Calibre.

Originally posted by popeye44:Perhaps he's right in some manner, But unlike paper book duplicating an e-book is limitless and costless, Unlike printing. I say your business is being done wrong if you pay less to print it than to right click and select copy/paste to create a new one. They are paying someone to convert it? Really? Are they friggin that dumb?

It's another case of an old business that struggling to adjust to a business model with virtually no marginal cost. They're still thinking about selling pulp and ink when they should be taking their cues from the pharmaceutical industry. Or at least Steam. The Steam sales do great business at heavy discounts because there's no marginal cost.

Yes, it was a rhetorical question. The point, of course, is that they clearly already don't price books according to actual cost, so appealing to cost now doesn't garner much sympathy.

Or, alternatively, that the price of a paperback sets a very concrete upper bound on how much they could possibly need to charge for an e-book, since the costs to produce, ship, and stock an e-book are clearly lower than for a paperback.

From teh article:"Lots of people assume that since you have an e-book, the price should be so much cheaper. And yet, when I wrote my Kindle book, the publisher had to pay me, the executive editor, the actual editor, the production editor, the guy who converts the book, and so on," McNulty said. "Actually, printing the book is the cheapest part of the whole scenario!"

Yeah, and warehousing and shipping are cheap too. And so is ordering a ton of books and selling only a few, except to help out those poor remaindering companies. Or only making 10,000 but suddenly finding the book with good reviews and demand is high, but by the time reprints are ordered, made, and shipped from whatever country got that contract to local distributors and shipped out again to local retailers ... that also isn't cheap.

None of those risks exist with digital goods. Its much less risky than having to place an order for a fixed number of books without any idea of how many will really sell.

Originally posted by popeye44:They are paying someone to convert it? Really? Are they friggin that dumb? Youtube allows me to take all sorts of formats and upload them. They do the conversion to flash. If they can do it for free I'm damn sure Amazon could transport a DOC/PDF into any format they'd like to for nothing. Heck I've been converting batches of html for a sony reader and it takes a few seconds per book.

Spoken like someone with no experience of ebooks vs. their printed counterparts.

Yes, Amazon can do that sort of auto conversion. In fact they have been doing it since they debuted the Kindle.

But auto conversion sucks. It introduces all sorts of little problems into the ebook. Things that were auto-hyphenated because of line-wrapping remain hyphenated even though they no longer wrap from one line to another. Paragraphs sometimes get run together, or pulled apart. Indexes meant for page numbering at a certain page and font size become badly broken. Tables of contents no longer link to the right places in the book - or are omitted completely. Formatting niceties like bolding, italics, underlining and such get lost or randomized. And so on and so forth.

It's not as easy as you think. If you want it done right, a human is going to spend time doing it.

Originally posted by Traddy:Yeah, and warehousing and shipping are cheap too. And so is ordering a ton of books and selling only a few, except to help out those poor remaindering companies. Or only making 10,000 but suddenly finding the book with good reviews and demand is high, but by the time reprints are ordered, made, and shipped from whatever country got that contract to local distributors and shipped out again to local retailers ... that also isn't cheap.

None of those risks exist with digital goods. Its much less risky than having to place an order for a fixed number of books without any idea of how many will really sell.

You're right that ebooks reduce certain physical production-and-distribution costs to zero. But ebooks do face other costs and risks. The biggest one being piracy. But also the fact that currently few people have readers, so markets are smaller. The storage and distribution mechanisms are software and that software requires maintenance - bug fixes, feature additions, user support. The ebook model is still new and relatively unfamiliar and untrusted by the mainstream consumer and many authors and publishers, so there are costs associated with advertising and convincing people to try it.

Don't kid yourself that this is a mature and proven market, so therefore we can just slap a valuation on the product and be done with it. Immature and unproven markets face all sorts of hidden costs and risks.

Originally posted by Thue:Even with 70% to the publisher, that leaves 30% to Amazon, if I understand it correctly.

That is insane. The cost and effort which Amazon has in reselling the ebook is very close to zero. 95%-50% would be close to a sane split.

You should see what the publishers make on books. This deal is about cutting out the middle man who have been screwing over authors forever. The deals they offer to authors are pretty despicable but have been the only option for a long time. This changes with self-publishing and ebook sales.

Lower pricing compared to "analog" books to account for the loss of resale, gift and lending rights, and added features (T2S) that uniquely leverage the digital format.

This is a great move by Amazon and exactly the thing e-books need to take off. It's jsut a shame that the Kindle Store isn't available in my market, and by the time it is Apple will have beaten them to it.

I'd also like to see publishers adopt the model suggested above, hardback + digital edition, similar to the film industry.

"Lots of people assume that since you have an e-book, the price should be so much cheaper. And yet, when I wrote my Kindle book, the publisher had to pay me, the executive editor, the actual editor, the production editor, the guy who converts the book, and so on," McNulty said. "Actually, printing the book is the cheapest part of the whole scenario!"

Well, he is completely missing the point. The added cost of selling one extra book is drastically reduced. I believe with the new system you should take into account that people probably will buy more books (especially if the price is lower). It is the same as with music (or films for that matter). People have an order of magnitude more music now that they can store it electronically, compared to how much music the average Joe had say 20 years ago. The labels still want the same revenue per song, which does not make sense. With an ebook-reader and a price per book of say 5$, I would probably buy many books "just in case I might want to read it once", or just to have a look at it. If you sell 100k books electronically for 5$, that gives you more revenue than selling 25k books in paper for 20$...

Originally posted by eothred:If you sell 100k books electronically for 5$, that gives you more revenue than selling 25k books in paper for 20$...

$5 seems like the sweet spot to me as well. I would be willing to forego resale or the ability to lend/borrow for $5 or less per book, but current pricing strategies put me off completely. Any arguments about the cost structure of publishing the book in the first place are moot for the majority of ebooks currently available, too. They want us to believe that the production costs of a book written >5 years ago are relevant to current ebook pricing? Really?

The moment they start publishing books as ebook exclusives is the point when I'll give those arguments any credibility whatsoever.

Hmmm, let's see. I have a bunch of books that have good information in them. But the company that sold them to me can delete any one of them at any time for any reason (or at the request of any agency) even if I am vehemently opposed to that reason. Basically, they can 'burn' every book at the touch of a button without a single copy surviving anywhere on earth.

And no one sees any problem with this scheme?

(And don't tell me we can back up copies--that capability only exists until there are no real printed books to compete with.)

Originally posted by inpher:The insane part is how much Amazon kept before this announcement: 65/35 in Amazons favor. This is acceptable.

Indeed. Amazon's take before this move was insanely greedy.

There's an obvious link to the threat from Apple, who also takes 30% of App Store sales. But the real question is how this will play out with regards to Amazon's war against the publishers, since self-published dross is unlikely to be of much importance in the market. Amazon's currently losing money on every Kindlebook that's still in the hardcover window, and would love to move the majors over to this new price scheme.

I suspect Apple won't be placing any pricing restrictions on its own 70% offer, making them much more attractive. Major publishers are already holding back ebook releases because of Amazon's practices. If Apple's tablet does take off, you have to wonder if they won't dump the Kindle completely.

"Lots of people assume that since you have an e-book, the price should be so much cheaper"

Missing the point that an ebook is inherently worth a lot less than a real book. I can't sell it on, I can't lend it to friends. If it's using DRM then it's totally tied in to a single device, meaning that if I want to upgrade my reader to a better model, there's a good chance that I can't take it with me.

it's not about the cost to produce the thing, it's about the value to the person with the money.

This has been my biggest complaint with e-Books since buying a Sony PRS-500 (the first US e-Reader) 3 years ago. A common book format! That is the solution, and what's needed. No device/content lock-in, dammit!

And right now we are headed toward EPUB as that common format. Sony and many other e-Readers support DRMed EPUB. The point is to buy a book from any store to read on your device... which means upgrading to a different brand/model of e-Reader will be fine too.

Amazon actually forced this, since they became instantly dominant with the Kindle. Now they're standing more-or-less alone with a proprietary format for their own e-Reader. Not very consumer-friendly if you ask me!

Other issues you brought up like re-sales and lending ... not sure how well they work with DRM EPUB, if at all. The Nook was supposed to break some new ground in lending. No idea if it's succeeded yet.

Yes, I know people are going to start yelling about removing DRM. But the first step is a universal format, then DRM elimination. After all, it's pointless if you get a DRM-free Kindle book, and can't read it on any of the 25 or so other devices out there!

-Pie

I didn't understand what the hell was that about E-PUB, since Mobi has been the de facto standard for quite a while. Then I learned that Amazon bought Mobipocket, and the mystery started to disappear.

At any rate, mobipocket is STILL the de facto standard. And it IS portable: you can lock the book to a number of different registered devices.

And you COULD read protected mobi books on Kindle as well as read Kindle mobi on other devices if amazon chose to allow it.

At any rate, while I understand the other vendors reluctance to go with something owned by Amazon, I don't see E-PUB as the solution.

Here's a curious fact: I have 263 e-books, not counting "demo" versions. Most of it, by far, came from the webscription store, which sells mostly Baen books, but also many other science fiction and fantasy publishers. There's also a number of Mobipocket books, from various publishers, and technicals books from O'Reilly and The Pragmatic Bookshelf. All in mobi format (.mobi or .prc, depending mostly on age -- the format is the same).

Originally posted by EatingPie:Yes, I know people are going to start yelling about removing DRM. But the first step is a universal format, then DRM elimination. After all, it's pointless if you get a DRM-free Kindle book, and can't read it on any of the 25 or so other devices out there!

-Pie

Oh, I missed this. A DRM-free Kindle book is a mobipocket book. It can be read on all ebook readers available, as well as many other devices (check out mobipocket's web page for clients). Well, it MIGHT not be read by Sony e-readers, as Sony is pretty keen on not supporting standards.

Originally posted by Traddy: And so is ordering a ton of books and selling only a few, except to help out those poor remaindering companies.

That's another good point. The book publishing industry typically ships out books that are returnable. If they sell, fine, and if they don't they ship them back and pulp them. From an accounting perspective, the publishers (or maybe the distributors) have to plan for a high number of returns and make their entries accordingly. With digital, there are no returns.

quote:

Originally posted by adminfoo:It's not as easy as you think. If you want it done right, a human is going to spend time doing it.

Certainly not as easy. But that job, as opposed to the editor, is probably one which would be ripe for outsourcing or off-shoring. Editing a book might be a job that requires an Ameican and a high salary, but the actual conversion could be done in, say, India for a fraction of the price.